UPA govt signs Rs10,000 cr Israel missile deal on the sly

New Delhi: On the eve of the general election, the UPA government has quietly signed a massive, legally opaque, Rs10,000 crore defence deal with Israel Aerospace Industries (IAI), ignoring a continuing probe by the Central Bureau of Investigation (CBI) and initial vigilance concerns.

The contract, to supply medium-range surface-to-air missiles (MRSAM), has raised worrying questions of propriety, with key bureaucrats and former defence officers playing influential roles in creating and pushing the deal through.

The deal, which was signed into a contract this month, comes at a time when India already possesses a more powerful missile in the same class --- the advanced air defence (AAD) missile, part of India's anti-ballistic missile shield.

DNA investigated the deal by accessing documents, tapping innumerable sources, and interviewing key military officers. A key point that emerged was that legal opinion did not conclusively favour the deal.

The deal, which is being kept under wraps, could sound the death-knell of the indigenous surface-to-air Akash missile system, into which hundreds of crores have been invested over the years. More importantly, the deal ignores the success of the AAD missile, which could be deployed as a surface-to-air missile and used exactly like the Israeli MRSAM.

DNA's investigation suggests that some former officers of the Indian Air Force (IAF) played a key role in limiting the large-scale induction of Akash into the force, pushing instead for the Israeli MRSAM. At least one of them is suspected to be working for the Israelis from New Delhi, say several military sources.

Joint development of the MRSAM between IAI and India's Defence Research & Development Organisation (DRDO) was cleared in July 2007 by the cabinet committee on security (CCS). But defence minister AK Antony did not give it his final administrative clearance because of the CBI's continuing investigation into the Barak missile scam (see box p20). The CBI had by then filed an FIR on the purchase of the Barak missile system in 2000 from IAI and Rafael, naming former defence minister George Fernandes and then navy chief Sushil Kumar.

Despite CCS approval, a cautious Antony sought vigilance opinion on the file. The defence ministry's vigilance department cited the CBI investigation to suggest that the deal should not go through, two different sources told DNA. So, the defence minister asked the DRDO to keep the file pending.

But some time in the last week of March 2008, the DRDO was ordered to move the file again for CCS approval. This happened even though the CBI was still investigating IAI and had, in fact, found more evidence of Israeli firms engaging arms dealers for the 2000 deal with the Indian Navy.

Asked why the government did not blacklist the two firms despite the CBI's FIR, a senior official remarked: "What do we do when we are neck-deep with the Israelis?"

In the past, whenever allegations about the involvement of arms dealers have cropped up, the government has moved quickly to blacklist the firms involved. These include Bofors, HDW, and Denel. In all three cases, the blacklisting was done even before the CBI had filed FIRs.

A senior defence ministry official, who defended the government on the contract, said the MRSAM file was sent to the solicitor-general, who felt that the CBI's FIR was not a bar and the government could go ahead with the deal if it considered the missile essential. Similar, vague opinions favouring the deal were obtained by the ministry from other agencies. The Central Vigilance Commission said the deal could go through if it was in the national interest.

The defence ministry sought the opinion of the law ministry, which said much the same thing: if the equipment was essential to national security, the deal could go ahead.

After fishing for favourable legal opinion, the "IAF was asked to confirm that it was absolutely essential" for national security, the defence ministry official told DNA. The IAF gave this in writing.

It's worth noting that none of the legal opinions specifically cleared the deal. They essentially lobbed the ball back to the defence ministry, asking it to decide if the MRSAM was essential for national security. The DRDO used the grey area of national security to prepare a supplementary CCS note, which was approved in December 2008. The DRDO and IAI representatives signed the deal into a contract just days before the elections were announced.

The deal was done despite a defence ministry guideline that virtually bans dealings with IAI and Rafael. An order issued on October 3, 2008, "with the approval of the Hon'ble RM (Raksha Mantri)", laid down details about how to handle IAI and Rafael. In dealing with them, the defence ministry's order said, tenders in which the two firms were the only competitors should be withheld. Tenders in multi-vendor deals could be given to the two firms, but they would have to be withdrawn if the CBI filed any charge-sheet. In procurements already underway and involving the firms, vigilance clearance had to be sought afresh. It also said repeat orders for Barak should not be issued since the FIR had already been lodged on the original purchase.

These are precisely the guidelines the defence ministry has breached. IAI was the only competitor for the MRSAM deal. Ideally, the deal should not have been processed.

But, in 2008, despite the CBI investigation, vigilance guidelines, and lack of multiple vendors in contracts, the government and the air force pushed through several deals with IAI and Rafael. Besides MRSAM, it approved two others: a repeat order for Aerostat radars, and low-level quick-reaction missiles (LLQRM) to protect existing Aerostat radars. Both these purchases were cited as reasons for approving the MRSAM deal.

The fact is that there was no open tendering in any of these three contracts. IAI was the only participant from the beginning in the MRSAM contract, and no comparative pricing was done in the international market.

i am still very optimistic about the AAD and the PAD we need a lot of SAM systems for the airdefence atleast 3 tiers are needed the short,medium and long range ones if we have a subdivision there is no harm but the way this deal seems to have been fixed raises quite an eyebrows. hopefully we get an official statement clearing the doubts as to why this was done.

Israel Aerospace Industries (IAI), the defence firm that was awarded a controversial Rs10,000 crore contract for the joint development of medium-range surface-to-air missiles (MRSAMs), confirmed on Thursday that it had indeed signed the deal. But it made a surprising disclosure: the deal was kept under wraps at the insistence of the government of India.

The contract was signed on February 27, just days before the Lok Sabha elections were announced. IAI was told that premature disclosure could lead to problems, and even termination of the contract. The deal includes suspicious clauses, including one for the payment of 6% "business charges", which many observers believe could be a camouflage for commissions. The payment of commissions and middlemen are banned in Indian defence deals.

Following the DNA expose over the last three days, IAI had no option but to come out into the open. IAI told an Israeli daily that India had asked it to keep mum.

According to a report in Globes, an Israeli financial daily, "IAI stated that it delayed announcing the contract until now because the customer (i.e., the Indian government) informed the company that early disclosure was liable to cause material difficulties in execution of the contract, and even result in its cancellation."

The report did not say why a formally negotiated deal between India and IAI, approved by the cabinet committee on security, should be cancelled just because it was made public. The IAI statement also raises questions about the conduct of the Indian ministry of defence over the entire deal.

The opposition parties, and especially the Left parties, are making hay over the DNA reports. It has become an election issue in Kerala, where defence minister AK Antony will have a tough time defending it. The Left is also using the report to display its opposition to Israel, presumably to score points with the Muslim electorate in Kerala and West Bengal, where it faces tough challenges from the Congress.

The ministry of defence has not officially made any reference to the deal. The Congress, however, protested its innocence. Said senior Congress leader and minister of state for external affairs Anand Sharma: "We absolutely reject any suggestion of wrongdoing. How can anyone even suggest any such thing could happen under a person of such integrity as defence minister AK Antony or in a government led by Manmohan Singh?"

Adding further weight to suspicions that the deal may not have been entirely above board, IAI also said that "it felt that this risk (of the contract being cancelled) would be substantially reduced once the advance payment was received," Globes reported.

In reports published between March 25-27, DNA exposed the dubious basis on which the contract was entered into despite specific defence ministry guidelines about dealing with IAI. The Israeli company is being probed by the Central Bureau of Investigation in connection with the Barak missile deal in which bribes of Rs 400 crore were allegedly paid. The missiles to be developed by IAI under the MRSAM contract are part of the same family.

IAI said the new deal was worth $1.4 billion (Rs7,000 crore), which is its share of the Rs 10,000 crore contract. The Defence Research & Development Organisation gets the balance Rs3,000 crore.

IAI said a part of the payment for the systems would be made during the development period, and the balance during the 66-month delivery period, Globes reported. According to the report, deliveries of the MRSAM would begin "90 months from the date the advance payment is received." The report also said that no advance payment had yet been received.

New Delhi, March 28: Investigations into a Rs 10,000-crore missile venture with Israel are revealing that Tel Aviv swung it by using companies known to use middlemen and peddlers of influence who produce cheesy videos of Bollywood-style item numbers (see graphic).

The joint venture aims to produce medium-range surface-to-air missiles (MR-SAMs) for Indian land forces. It was signed three days before the elections were announced.

The deal, being probed by the CBI and also being questioned by the Central Vigilance Commission, is disguised as a “joint venture” between the Defence Research and Development Organisation (DRDO) and the Israeli government’s Israel Aerospace Industries (IAI). Also involved is Israel’s interceptor missile maker, Rafael Armaments Development Company.

Former defence minister George Fernandes, former navy chief Admiral Sushil Kumar, and arms agents Suresh and Sanjeev Nanda are named in a first information report filed by the CBI in a separate deal in which the Indian Navy procured seven Barak ship missile defence systems from Rafael for $199.5 million and 200 missiles for $69.13 million in October 2000.

The CBI is investigating charges that commissions of 3.5 per cent were paid to middlemen.

For the MR-SAMs, IAI was contracted on February 27 (exactly a month back) but it has now told the Israeli media that it delayed announcement of the deal on a specific request from the Indian defence establishment “because the customer (India) informed the company that early disclosure was liable to cause material difficulties in execution of the contract, and even result in its cancellation”.

The company said it was announcing the deal now —March 26 — because the advance payment had been made, nearly a month after the contract was signed. Investigators are questioning a payment of $600 million on unspecified charges in the contract.

At its current value of $1.4 billion, the deal with the IAI outraces the Indo-Russian Brahmos to be the largest single arms joint venture between India and any foreign country.

It is set to make Israel the largest recipient of India’s defence payouts to a foreign country. This pole position has historically been held by Russia.

The IAI is the systems integrator for the Rs 10,000-crore MR-SAM project and Rafael is the interceptor-missile maker which will jointly collaborate with the DRDO.

Ironically, the joint venture will kill off the DRDO’s homegrown Akash MR-SAM project that is being inducted by the Indian Air Force but which the Indian Army is not finding good enough despite a series of tests.

“The IAF has placed orders for two squadrons,” said a DRDO source “but we do not understand why the army is sitting on its order for more than six months now. Sometimes they say the system is not agile enough, sometimes they say it is not mobile enough because it is on a tracked chassis (meaning it is mounted on a tank).”

The MR-SAM built for the air force is a towed version. What is good for the Indian Air Force is not good enough for the Indian Army, the DRDO says.

But the Indian Army has made up its mind that what will definitely be good enough for it is the one on the drawing board with Israel.

Rafael has outsourced its marketing to a company named Elul Technologies — headed by David Kolitz, a former senior employee — whose Asia wing is also headed by the former chief of Rafael’s Asia wing. Elul and Rafael are tapping into Indian expertise.

The expertise is offered by senior Indian Army and Indian Air Force officers who have retired recently and are networked with the bureaucracy of the defence establishment.

This information is available to the investigators who have been carrying on with their work despite the cabinet committee on security approving the “joint venture” in July 2007, defence ministry sources have told The Telegraph. The joint venture was contracted last month even as the run-up to the elections began.

The MR-SAM, for which the DRDO will give the brains, the IAI will take the brawn from Rafael and put the two together and sell to India’s land forces with item numbers thrown in, will not be in small numbers.

The Indian Army will take as many as nine squadrons of the MR-SAMs, each with a range of 70km or more for area air defence.

The package will include 10 command and control centres, 18 acquisition radars, 18 guidance radars, 54 launchers and 432 missiles.

Rafael, which is already supplying Spyder air defence systems (low-level, quick- reaction surface-to-air missiles) to the Indian Air Force, will corner a third of the revenues generated from the project.

Who were the main actors pushing for the controversial Rs10,000 crore medium-range surface-to-air (MRSAM) contract with the Israel Aerospace Industries (IAI)?

The deal, signed on February 27, just days before the general election was announced, had an unheard of clause for paying Rs600 crore (6% of the contract value) as "business charges".

While Israel's Elul Group is already under scrutiny, serious questions are also being raised about a retired Indian Air Force (IAF) officer who played a crucial role in formally proposing purchase of MRSAMs from Israel.

This officer was also responsible for scuttling the large-scale induction of the indigenous surface-to-air missile Akash.

Over the past few days, DNA's investigation has raisedquestions about the controversial deal with IAI, which is already being probed by the Central Bureau of Investigation in connection with the Barak missile deal of 2000. The MRSAM deal was signed despite initial vigilance objections, neutral legal opinions, and the success of the indigenous Advanced Air Defence missile of similar capability.

DNA's investigation found that the IAF officer, who retired about two years ago, is now working for the Israeli arms industry in New Delhi.

Without naming the officer, Defence Research & Development Organisation chief M Natarajan told a press conference in Bangalore during the Aero India show last month that the officer had slashed his predecessor's commitment to induct eight squadrons of Akash missiles. The officer had brought the figure down to just two squadrons. Akash has a range of 27km, while MRSAM has a range of about 70km.

A source in the defence ministry confirmed that even for the induction of these two Akash squadrons, the IAF put a condition that the DRDO must first agree to the MRSAM project. "We were blackmailed into the MRSAM project," said the source.

"He [the former IAF officer] killed Akash, blackmailed us to agree to MRSAM, and is now working for them [Israeli arms companies] openly."

"Yes, we are aware (that the officer is working for Israelis)," said a senior defence ministry official, who had defended the government for going ahead with the MRSAM deal.

The official said the ministry has not yet sought clarification from the officer because he retired "two years ago". But "he has very limited access in the defence ministry and air headquarters," the official claimed.

The retired officer had held such a crucial position in the IAF that it is surprising why the government has closed its eyes to his alliance with foreign arms firms after retirement.The role of another IAF officer is also coming under scrutiny in this matter. He is associated with Nova Integrated Systems, the Tata-IAI joint venture which will be integrating the MRSAM.

Several officials in the defence ministry are baffled how a private-sector firm has been nominated as the integrator for the sensitive missile system. In India, all missile systems are integrated in public-sector units, usually Bharat Dynamics Limited (BDL).

In fact, DRDO suggested BDL as the integrator for the MRSAM, with Israelis supplying the seeker and some radar components and DRDO making the airframe, servos, and propulsion. But Nova will be doing the integration now.

This is yet another decision that has raised eyebrows. Sources in the defence establishment believe it is a perfect example of how the Israelis were able to get through whatever they wanted.

New Delhi: On July 31, 2005, DNA had exposed the leak of national secrets from the naval war room in South Block. Statements by officers allegedly involved in leaking the secrets had revealed that efforts to award the medium-range surface-to-air missile (MRSAM) contract to the Israeli Aerospace Industries (IAI) were already on. An officer revealed that the missile's required range was scaled down to benefit the Israelis.
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DNA's investigation raised questions regarding the conduct of the UPA government in concluding the Rs10,000 crore deal with IAI on the eve of general elections. Though legal opinion didn't conclusively favour the contract, the government went ahead, and agreed to pay "6% business charges" (about Rs600 crore). In the war room leak case, four officers were booked and dismissed. Among revelations by these officers, most startling are statements by former wing commander SL Surve, who was arrested and dismissed from the Indian Air Force.

Surve was joint director (air defence) in the operations branch at IAF headquarters. In statements to the media on his behalf by an NGO, Nausainik Jan Chetan Samiti, he detailed how efforts to award the MRSAM contract to IAI were on since 2005.

"The IAF had felt the requirement of latest MR [medium range] surface [-to-air] missiles to be in position before the end of this decade. In financial projections, the IAF asked for about Rs14,500 crore," said the document released in the latter half of 2005. The field units had "recommended the requirement" for the MRSAM "to be able to hit a target at a distance of 150km", the statement said.

"There were missile systems available in [the] world market with ranges from 120-150km. However, to help a vendor, [then] vice-chief of air staff (VCAS) was keen to procure off-the-shelf missile which has a range of 60-70km," the statement said. Surve claimed to have resisted the move. The MRSAM deal is for a missile with a range of 70km.

Surve alleged that the then VCAS and other officers were not interested in inducting the indigenously developed Akash missile system, rendered almost defunct by IAF ordering two squadrons.

Sources in the Defence Research and Development Organisation, IAF and defence ministry agree with Surve's statement and blame the group of officers for scuttling Akash's induction in big numbers.

The statement said the then deputy chief of air staff favoured "procuring items related to air defence from some foreign vendors".

Surve said there was a plan to delay procurements until an officer joined a critical office in the IAF headquarters. The officer named in Surve's complaint had come into focus during DNA's investigation.

A defence ministry source admitted that senior officials were aware that the officer, who retired about two years ago, was working for the Israelis.